U.S. Subprime CDS Recover from Maiden Lane

Mortgage & Real Estate

U.S. subprime credit default swap prices recovered in July after being adversely affected in June by the so-called Maiden Lane auctions and the problem looks unlikely to recur, according to Fitch Solutions’ index.

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“Increased uncertainty in the broader markets is likely to keep Maiden Lane on the backburner,” Alexander Reyngold, senior director, Fitch Solutions, told this publication.

“Though Maiden Lane will stay in the market’s memory, it will not play an active role until subprime CDS prices reach new highs,” David Austerweil, director, Fitch Solutions, told this publication.

Fitch said U.S. subprime CDS prices recovered most of last month’s losses, increasing 1% overall.

Both 2006 and 2007 saw their largest price increases this year during the period, with the former being particularly notable because the vintage has significantly underperformed its peers in the past, Reyngold noted.

Loan performance during the month was mixed, according to the Fitch Solutions report. Ninety-day-plus delinquency rates dropped by 1.4% to a low for the year of 10.8%, but the one-month constant default rate increased substantially by 13.5%.

At one point during the Fed’s Maiden Lane auctions of subprime RMBS earlier this year the market reached a point where it could not absorb the supply and prices took a hit as a result.

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